Below we have provided easy to read descriptions of the most common tax deductions for individuals.
Our role is to claim the legal maximum amount of deductions possible to minimise your tax. From time to time we may refer you to these and ask that you verify that you meet the deductibility criteria.
The general premise for motor vehicle claims to be deductible is that you own or lease the car, the travel is required for work, and you are “on duty” while traveling.
There are exceptions to these rules for when you are carrying bulky tools that cannot be left at work (i.e. too heavy or big to transport any other way), or if you are an itinerant worker (multiple workplaces per day).
For the 2017 year onwards, there are 2 methods of calculating your motor vehicle claims: the cents per kilometer (CPK) method, and the log book method.
The CPK method is the more relaxed of the two in terms of the records and substantiation required. You need to have reasonable evidence of your work trips, which could simply be a diary of relevant trips across the year, and the kms of each trip. This method is limited to 5000kms, and it covers all motor vehicle costs (such as depreciation, interest, fuel, registration, maintenance, etc).
The log book method is more onerous, but in general achieves a better result. You must maintain a log of all trips across a 13 week continuous period (work related and private), and detail dates, purpose, odometer readings at start and end, etc. From this log we work out what % of your travel is business related, and then apply that across all expenses. This also means that you need to keep records of all expenses, such as fuel, maintenance, registration, insurance, etc. You cannot estimate your work related %, or your expenses under this method.
Travel to and from home
In most cases, travel from home to work is not deductible because it is travel before (and after) you start your work day. Even if you stop at the post office or supermarket in the middle, that travel is still not claimable.
Being “On Duty”
This means that you are under the control of your employer, and in most cases it will be a requirement that you are being paid for this time. Again, this rules out home to work travel because you are not under your employer’s control during this time, and not being paid.
Convenience vs Necessity
Travel performed out of convenience can prevent it from being deductible. An example would be stopping at the supermarket on the way to work because it is more convenient than going during the work day – this doesn’t make the travel deductible.
The same premise also applies to where you live – the ATO sees this as a personal choice. If you need to stay away from home because the commute is too far to do daily, this is not deductible because it is an expense of convenience.
The Bulky Tools Concession
Where the transport of heavy and or bulky items is a practical necessity, your home to work travel may be claimable.
Transporting the items must be necessary on the day (i.e. while you may carry your full toolbox all the time, if you don’t use it, then it wasn’t necessary for you to take it), must be incapable of being transported any other way, and there must be no secure storage facility (i.e. if you choose to take items home because it saves you travelling to the office first, that doesn’t make the trip claimable).
“On Call” Workers
If you are on call, your travel is only claimable if you start a job at home, and only travel should you be unable to complete the job at home. We note taking a phone call isn’t enough to trigger “starting a job at home”.
“Itenerant” Workers
Commonly tradies will argue they don’t have a set place of employment, therefore all their travel is deductible. This is not entirely accurate.
To qualify:
- Travel must be a fundamental part of your job (excluding home to work travel);
- There is a “web” of workplaces that you attend; and
- You will regularly work at multiple sites / workplaces per day.
Many tradies don’t qualify here due to them working at one site per day.
Similar to motor vehicle claims, for other travel (such as taxi’s, airfares, etc) to be deductible they need to be necessary, not out of convenience, and incurred while “on duty”.
“Special demands travel”, which would include things like heading interstate to visit another branch may be deductible even though they may fail the above tests because it is a particular direction from your workplace.
The convenience vs necessity differentiation becomes prevalent when working away from home. Are you required to live away from home? Or is it merely more convenient? If you are on a job 2 hours away from home you might feel that you need to stay in a hotel nearby, but ultimately it’s not necessary.
Flights, Taxi, Uber, etc
These will be deductible if the meet the above conditions.
Meals
The deductibility of meals is largely misunderstood by the general public. There are generally only two circumstances where your meals are claimable:
- You are on deductible overnight travel; or
- You are working overtime AND being paid an overtime meals allowance.
Even if you are a salesperson in the car all day everyday with no lunchroom to store your food – it doesn’t make your purchased meals deductible.
If You Are Receiving a Living Away From Home Allowance
A true “living away from home” arrangement is one where you are required to be away from home for work on a semi-permanent basis – think of a fly-in fly-out arrangement where you are working somewhere remote.
Generally, the LAFH allowance you receive is not taxable, and as such any costs you incur associated with living away from home are not deductible.
If You Are Receiving A Travel Allowance
The receipt of a travel allowance, meal allowance, or any other type of allowance doesn’t make travel expenses, meal expenses, or any other expenses deductible where they wouldn’t normally be (the exception being overtime meals).
Substantiation
If you claim a travel expense, you need the evidence to back it up (including the explanation as to why that travel is deductible). There is no amount that the ATO allow you to have without receipts, despite what your neighbor may tell you.
In some circumstances there are “reasonable amounts” that the ATO will accept with less evidence required – but you still need evidence (bank statements and diary entries may suffice in these circumstances).
The first thing to point out is that ordinary clothing is almost never deductible. It doesn’t matter if your employer forces you to wear a particular colour, style, or brand – it is not deductible.
For clothing to be deductible, it generally must be either:
– Protective;
– A compulsory uniform with a logo;
– A registered uniform; or
– Occupation specific clothing
Protective Clothing
Clothing that is specifically designed to protect you from work related hazards, injury, disease, and/or death are claimable.They key here is that the clothing must be specifically designed for that purpose. Jeans, while they do provide greater protection than most clothing, are not designed to protect from work hazards and are not deductible.
Compulsory Uniform
In the ATO’s words, “must be prescribed by the employer in an expressed policy that makes it a requirement…to wear that uniform while at work, and which identifies the relevant employer”.
The ATO also consider that for a uniform to be identifiable, it needs to have limited colour, style, and fabric choices (as to not dilute the identification of the brand), and the uniform must be “durable” as in the overall concept or look of the clothing should be intended to last for a number of years.
Occupation Specific Clothing
For example, a nurse’s uniform, ceremonial robes, chef’s pants, barrister’s robes, and other items that are readily identifiable to one specific occupation. Clothing that can be attributed across a number of occupations (such as a business shirt) are not deductible.
Sun Protection Expenses
If you are required to work outdoors, then the cost of glasses, hats, and sunscreen can be deducible also.
Landry and Dry Cleaning
The cost of laundering and maintaining clothing that fits the above definitions are claimable. It’s difficult to ascertain the actual cost of this (what does it cost you to put a load of washing on?), so the ATO generally allow a rate of $1 per wash (or 50c per wash if work clothing is mixed with personal clothing).
Substantiation
Aside from laundry costs, be prepared to keep your receipts for all clothing purchases. Failure to do so may result if your deductions being denied by the ATO.
We need to educate ourselves and improve our skills to get a job (or a better job), so surely these costs are deductible right? Not usually.
This is also regardless of whether your employer mandates that you undertake the training.
Training Must Meet The Following Critera
For self-education to be claimable, you need both of these:- Your income earning activities are based on using specific skills or knowledge, and the education maintains or improves that knowledge; and
- The education objectively leads to increased income from these income earning activities
AND Must Not Be One Of The Following
In addition to meeting the above 2 points, for education to be claimable it must NOT fit under either of the below:
- The education must not be undertaken to obtain a new job, a new role, or to earn income from different activities
- At the time the education expense was incurred, you are not earning income from the related activites
The Grey Area
Direct from a court case, this example may assist you.
“Hatchett” was a primary school teacher who as an “untrained” teacher was being paid a lower pay rate when compared to “trained” teachers – even though he was doing the same job, the same hours, and had the same obligations.
Hatchett enrolled in a “Teacher’s Higher Certificate” to gain the qualification to enable him to jump to the higher pay scale.
These fees were held to be tax deductible by the courts.
In the same case, Hatchett also undertook a University course which included an Arts subjects which would allow him to teach different classes and would also qualify him to become a headmaster down the track.
The courts disallowed the University fees because these were opening up new income earning activities.
If Your Education is Claimable
If your education is of the type that is claimable, then the types of items that are deductible include:
- Tuition fees (however we note HECS / HELP fees are not deductible);
- Books and resources;
- Student union fees;
- Travel related to attending the educational institution;
- Phone, internet, computer, stationary, and home office expenses; and
- Interest on borrowings to pay for the above.
Substantiation
In relation to your costs, keep receipts of everything. If your claims include motor vehicles, home office, or other items where the ATO allow diary evidence, make sure you have those ticked off too.
You will also need to have evidence that the education you are claiming does fit the criteria (i.e. maintains your existing knowledge), and is not designed to improve your knowledge to open up further job opportunities. The ATO challenge these, and unfortunately the onus is on you to prove it is deductible. The ATO does not have to prove you wrong – they are afforded the assumption that your education is not claimable by default.
Many of us work from home, but there are certain conditions that you must meet before you are able to claim a portion of your home expenses, and these vary based on your circumstances.
In general, home office expenses are grouped into two categories:
– Running expenses: Such as electricity, gas, cleaning, insurance, furniture, etc; and
– Occupancy expenses: Such as mortgage, rent, council rates, water, etc.
Home Office for Personal Convenience
Where you perform work activities from home because it’s easier or more convenient than doing it at the office (even if the hours required of you are long), then you are limited in what you can claim.
You are essentially limited to claiming costs that are additional to what would have been incurred by the household anyway. For example, if your home has a ducted heating system, it is going to cost you the same amount to heat your home whether you are working in the study or not.
Home as a Place of Business
In order to qualify here you generally need to demonstrate that your home office is distinctly separate from the rent of your home and private living spaces, and is used pretty much exclusively for work purposes.
Two barristers have already tried and failed to claim that a spare bedroom was a “place of business” because:
– there was no physical separation of the study area to the rest of the house; and
– the barristers had chambers they could work from.
An example may be a massage therapist that sees some clients at home after hours, and they have a dedicated room setup for this.
In this case, you can be more generous with what running costs you claim, but you cannot claim mortgage interest, rent, or other occupancy expenses.
Home as Your Only Place of Business
If your home is your only business premises, then it opens up the claims you can make. However (*cue the big warning*), claiming your home as a business premises is likely to mean that it no longer qualifies for the main residence capital gains tax exemption.
You can claim the relevant proportion of all housing costs (mortgage interest, rent, rates, electricity, gas, insurances, etc). You should work this out based on the floor area of the building used for business vs the entire floor area.
Substantiation
The ATO have an administrative concession that allows people who use their home as a place of business to claim 52 cents per hour to cover running costs and the cost of furniture. You need to keep a diary for 4 weeks detailing your use, and that will be enough for the year.
For COVID effected years, this rate is increased to 80 cents, but also includes telephone and internet (i.e. you can’t claim these separately).
If you prefer to claim a percentage of your expenses based on floor area, be prepared to back up each and every item with a receipt.
Gifts and donations are tax deductible when made to an eligible organisation. While the list is too long to detail, the types of organisations include:
– hospitals;
– public benevolent organisations;
– Scientific research organisations;
– School building funds;
– The armed forces;
– Public libraries;
– Political parties (subject to a $1,500 limit);
– Volunteer fire services; and
– Organisations listed at http://www.abn.business.gov.au/DgrListing.aspx
This means that payments made to cloud funding websites (such as GoFundMe and Kickstarter) are generally not deductible.
It Must be a Gift
A gift is not a gift if you get something in return. For a gift or donation to be tax deductible, you cannot receive anything in return (other than a token gesture, such as an ANZAC badge). The purchase of raffle tickets for example is not tax deductible, neither is the purchase of a soft toy from a charity, or the purchase of tickets to a charity event should you get fed at the event.
A gift must also be voluntary. Mandatory contributions to a school building fund are not eligible for example.
Donations of Property has Conditions
You are able to gift items and assets if it meets one of the below two conditions:
– The item was purchased by yourself within the last 12 months; or
– The item is valued at more than $5,000
If purchased within the last 12 months, the deductible amount is the lower of its cost and market value.
Substantiation
While not subject to the same strict requirements of most other expenses, you still need to be able to prove that you made the donation, that is really was a gift, and who it was made to. Realistically this would be in the form of a receipt from the donee.
For the 2022 year, the cost of COVID testing is tax deductible, but only where the purpose of the test was to see if you are able to go to work or not.
Travel to get tested is not claimable, but any postage fees or other charges (e.g. postage for RAT tests) are claimable, subject to the purpose of the tests being work related.
For tests prior to 1 April 2022, the ATO will accept any reasonable evidence as the cost of the test (e.g. bank statement). From 1 April 2022, the only acceptable evidence is an invoice / receipt.